GST and Intermediary Services: From a Persistent Litigation Hotspot to Legislative Reform

Introduction: Why Intermediary Services Remain a Contested GST Territory

Cross-border service transactions have long posed interpretational challenges under India's indirect tax framework. Among these, the classification of a service as an "intermediary service" carries decisive consequences — it determines the place of supply, which in turn governs whether the transaction qualifies as an export or attracts domestic GST liability. This distinction has fuelled relentless litigation, cost assessees substantial refund claims, and drawn repeated judicial intervention across multiple High Courts.

The roots of this controversy trace back to the Service Tax era, carried forward into the GST regime through Section 2(13) and Section 13(8)(b) of the IGST Act, 2017. This article presents a structured examination of the legal framework governing intermediary services — covering the statutory definition, place of supply rules, available exemptions, landmark judicial developments, and the pivotal reform brought in by the Finance Act, 2026.

Statutory Foundation: What Does the Law Say?

The Pre-GST Era

Under the Service Tax regime, the Place of Provision of Services Rules, 2012 first introduced the concept of "intermediary." The definition at that stage covered brokers, agents, and others who arranged or facilitated the provision of a service between two or more persons without supplying the main service themselves. Crucially, the place of provision was fixed at the location of the service provider — meaning even services rendered to foreign clients were taxable in India. This approach drew sharp criticism for conflicting with the destination-based taxation philosophy.

Definition Under GST: Section 2(13) of the IGST Act, 2017

With the transition to GST, the legislature retained a substantially similar definition. Section 2(13) of the IGST Act, 2017 defines:

"intermediary" means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account.

The phrase "on his own account" forms the critical dividing line between an intermediary and an independent principal service provider.

Core Elements of Intermediary Classification

Circular No. 159/15/2021-GST issued by CBIC provides comprehensive guidance on identifying intermediary services. The following conditions, drawn from the circular, must be collectively satisfied:

Three-Party Minimum Requirement

An intermediary arrangement must necessarily involve at least three distinct parties — two engaged in the principal transaction and one facilitating it. A two-party arrangement cannot, by definition, constitute intermediary services.

Two Separate and Distinct Supplies

The structure must contain two independent supply streams:

• Primary supply: Between the two principal parties
• Ancillary supply: Facilitation or arrangement service rendered by the intermediary

The intermediary must not be a party to the main supply.

Nature of Role — Agent or Broker

The intermediary's function is supportive, not substantive. The person acts in the capacity of an agent, broker, or similar facilitative role — assisting in the execution of the principal transaction without being its primary provider.

Exclusion of Own-Account Suppliers

Where a person delivers the service — whether wholly or partly — on a principal-to-principal basis, the definition explicitly excludes them from being classified as an intermediary.

Sub-Contracting Is Not Intermediary

A sub-contractor who actually performs the main service, even if only a component of it, is treated as a service provider in their own right — not a facilitator. Sub-contracting arrangements therefore fall outside the ambit of intermediary services.

Additional Clarifications Through Subsequent Circulars

Two more recent circulars have added granularity to the interpretation:

Circular No. 230/24/2024-GST dated 10 Sep 2024 (in the context of advertising services) clarifies:

• Where an advertising agency procures media space and delivers comprehensive advertising services on its own account, the arrangement involves two independent principal-to-principal supplies — the agency is not an intermediary.
• However, where the agency merely connects a foreign client with a media owner, and the contract is executed directly between the client and the media owner, the agency functions as an intermediary.

Circular No. 232/26/2024-GST dated 10 Sep 2024 (addressing data hosting services) clarifies: